Economic Update

Canada tabled its first Federal budget in two years and the first budget post the COVID-19 outbreak. Below, we would highlight some of the bigger take-aways:

• Deficit in 20/21 of ~$350 billion, declining to ~$150 billion in 21/22 and then ~$50 billion for 22/23 and 23/24 before settling in at around $25 billion per year – basically the budget does not foresee balance over the next 5-years and likely longer. As we have discussed in the past, this has potential repercussions for Canada’s credit rating, the level of interest rates and the Canadian dollar. While we continue to think that 2021 will be a good year for the Canadian dollar, we have longer-term concerns given the level of borrowing. To put it in perspective, Canada will amass almost as much Federal debt over the 5-year period from 2020 to 2025 as it amassed in its 150-year history prior to 2020.
• Ambitious childcare program that is likely to boost labor force participation among women. These sorts of programs have the potential to boost economic growth in the long-term.
• Targeted support for clean technology. One of the things we have harped on for some time is Canada’s need to be known for something from an economic perspective. It is okay to de-emphasize natural resources, but you had better have something to fill the void in terms of growth. In our view, the government needs to do more to support business either through taxation or regulations or both, so there is more that’s needed – but the willingness to invest is an important step.
• No meaningful tax changes – while we were fairly certain that tax changes were unlikely in this budget given the tenuous state of the economy, we were not willing to completely rule it out. We still have concerns over the next couple of years that we will see taxes go up for “the wealthy” as the government will likely look for ways to pay for all of this spending.

For more on the budget, here is a link to RBC Economics thoughts: https://thoughtleadership.rbc.com/pandemic-to-recovery-big-spending-continues-with-budget-2021/?_ga=2.261539725.1064260931.1619191134-610831116.1549371697

COVID-19 Update

Cases worldwide are approaching 150 million with more than 3 million fatalities. Daily case counts continue to rise and are approaching one-million.

The Good News

Israel continues to be demonstrative of what we can expect when vaccinations reach critical mass. Let’s take a look at daily case counts:

As you can see, Israel is now to a daily average of ~150 new cases, while fatalities are down to an average of less than 5/day and falling. While most of the rest of the world remains well behind Israel in terms of vaccinations, it does provide some comfort that the virus can be brought to heel if and when mass vaccinations occur.

The Bad News

Brazil and especially India remain very problematic as new variants ravage both countries. Canada took the step this week of banning all flights from India and Pakistan for 30-days in an effort to stop importing the variants.

Further, Pfizer indicated this week that it was very likely that recipients of the Pfizer vaccine are likely to require annual booster shots to maintain their immunity. This is not necessarily a surprise, but it does create an ongoing challenge for governments in terms of procurement and mobilization.